Antonio Flores’ Blog

Until recently, Spanish lawyers cautioned their clients that the level of Inheritance Tax (`IHT´) in Spain, for non-resident heirs, could mean the difference between being able to inherit or not. The worry is still there but, ever since the European Court of Justice (ECJ 3/9/2014) ruled that Spain’s IHT tax rules were discriminatory – different rates for residents and non-residents-, the latter are able to enjoy the same allowances residents can apply on their tax returns.

So now, for instance, an EU-resident who inherits in Andalucía an estate worth less than €175.000 from parents, children or spouse is totally exempt from paying IHT. This is no small matter for this allowance has made possible that in 2014, according to the statistical information provided by Junta de Andalucia, 93% of all IHT tax declarations filed anywhere in Andalucía were without associated payment (nil tax returns).

If we take for instance the average family with a property and two children, on the basis that in Andalucia the average price per square meter of property -as recorded in December 2014- was of €1,500, with an average size according to the Ministry of Housing of just over 105 m2 (and 187 m2 for town houses and villas), it is easy to understand why only 7% of IHT tax declarations filed by residents of Andalucía included a sum of due tax.

This is great news, for more than one reason. Firstly, a logical one: it reduces the IHT tax bill on the estate of holiday property owners, automatically, as from the 28/11/2014 (date of effective implementation of the ECJ ruling). Secondly, it takes the fear of God away from thousands of owners who’ve been incessantly bombarded -over the last years- with unreal horror stories that depict the Spanish taxman slicing into the estate of a deceased Briton, only to offer an illegal tax-dodging scheme to avoid it (mostly foreign based companies and equity release loans).

Of course, IHT will still be an issue for the wealthier whose inheritors could be hit with as much as 34% (on estates above 800k Euros). For owners not included in the above 93% contingent, we suggest some degree of planning to minimize -legally that is- exposure to IHT.

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It is a well-documented fact in Spain that, in the layman’s mind, we have a sluggish judicial system is incapable of dealing with a backlog of undecided cases. And this is bad because it brings to the entire court system a loss of public confidence, respect and pride.

But there are notable exceptions: the Spanish Supreme Court has recently ruled on two immigration cases (7/4/2014 and 5/5/2014) in a record breaking time of just under 2 years from when the Spanish Consulate in Teheran turned down two permanent residency applications, rejections subsequently confirmed by the Madrid Appeal Court.

These cases relate to Iranian nationals who had filed for Spanish non-lucrative residency in September 2012, after purchasing real estate in the province of Malaga. In their applications, they had proven that they possessed sufficient “means of subsistence” for the first twelve months, which is the duration of the initial residency period. Both the Consulate and the Appeal Court, strangely enough, understood that the required means of subsistence had to be enough to cover the full span of the temporary residency period, five years, when the law states one year.

The relevance of these cases stems from the unexpected judicial speediness and efficiency in resolving cases that would otherwise drag on for six or more years, an average time to reach the Supreme Court.

But the case also sends a crucial confidence message to investors who rely on the word of the law but have to endure the pains, when applying for their visas, of discourteous and unprofessional members of the Spanish consular service, often seen as a deterrent to foreign investment.

And I can sympathize with Iranians in particular as I have had to deal, many times that is, with bizarre decisions by the Spanish Consulate in Tehran, a place that I have incidentally visited personally on one occasion.

As said, a small victory for two Iranian families willing to invest in Spain but, most significantly, a far-reaching message to investors and Consular service staff members: the law is to be applied, and nothing more.

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